Question

Date	Purchases
07-Jan	25 units @ $7,500 each
15-Mar	35 units @ $8,000 each
16-Jun	15 units @ $8,250 each
03-Aug	45 units @ $8,500 each
1 1 -Oct	12 units @ $8,600 each

Sales for this first year of operation amounted to 105 units and totaled $1,365,000.

If TopFlight uses the first-in, first-out (FIFO) inventory method (periodic approach), what values would be assigned to ending inventory and cost of goods sold? How much is gross profit?

If TopFlight uses the last-in, first-out( LIFO) inventory method' (periodic approach), what values would be assigned to ending inventory and cost of goods sold? How much is gross profit?

If TopFlight uses the weighted average inventory method (periodic approach), what values would be assigned to ending inventory and cost of goods sold? How much is gross profit?

Which of the above techniques produces the highest profit? Which of the above techniques reports the most "current" cost on a balance sheet? Which of the above techniques report the most "current" cost in measuring income? Which of the above techniques results in the lowest income tax obligation?

Answer 1

Computation for COGS, GP and closing inventory:
Particulars	FIFO	LIFO	Weighted Average
COGS	$ 8,46,250	$ 8,73,450	$                     8,56,665
GP	$ 5,18,750	$ 4,91,550	$                     5,08,335
Closing Inventory	$ 2,30,700	$ 2,03,500	$                     2,20,285
FIFO techniques produces the highest profit. FIFO or weighted average techniques reports the most "current" cost on a balance sheet. FIFO techniques report the most "current" cost in measuring income. LIFO techniques results in the lowest income tax obligation.
Working Note:
Given in question:
Date	Purchase
Unit	Rate	Amount
07-Jan	$             25	$       7,500	$                     1,87,500
15-Mar	$             35	$       8,000	$                     2,80,000
16-Jun	$             15	$       8,250	$                     1,23,750
03-Aug	$             45	$       8,500	$                     3,82,500
11-Oct	$             12	$       8,600	$                     1,03,200
Total	$           132	$       8,159	$                   10,76,950
FIFO Method:
Particulars	Unit	Rate	Amount
Sales	$           105	$     13,000	$                   13,65,000
Less: COGS
	$             25	$       7,500	$                     1,87,500
	$             35	$       8,000	$                     2,80,000
	$             15	$       8,250	$                     1,23,750
	$             30	$       8,500	$                     2,55,000
COGS	$           105	$       8,060	$                     8,46,250
Gross Profit			$                     5,18,750
	$             15	$       8,500	$                     1,27,500
	$             12	$       8,600	$                     1,03,200
Closing inventory	$             27	$       8,544	$                     2,30,700
LIFO Method:
Particulars	Unit	Rate	Amount
Sales	$           105	$     13,000	$                   13,65,000
Less: COGS
	$             12	$       8,600	$                     1,03,200
	$             45	$       8,500	$                     3,82,500
	$             15	$       8,250	$                     1,23,750
	$             33	$       8,000	$                     2,64,000
COGS	$           105	$       8,319	$                     8,73,450
Gross Profit			$                     4,91,550
	$               2	$       8,000	$                         16,000
	$             25	$       7,500	$                     1,87,500
Closing inventory	$             27	$       7,537	$                     2,03,500
Weighted Average Method:
Particulars	Unit	Rate	Amount
Sales	$           105	$     13,000	$                   13,65,000
Less: COGS
COGS	$           105	$       8,159	$                     8,56,665
Gross Profit			$                     5,08,335
Closing inventory	$             27	$       8,159	$                     2,20,285